Pay Up or Die. The High Cost of Prescription Drugs
By Bob Aronson
At the onset of this post it is important to point out that capitalism (or the desire to make money) works. If the public demand for any product real or imagined is high enough, someone, somewhere will invest the dollars to develop it and in return they expect a profit. There is absolutely nothing wrong with that. If they are taking the risk, they deserve a profit, even a healthy profit.
As a business owner myself I always sought to make a healthy profit. I could easily justify my pricing because it took years of learning and investing my own money to develop a detailed and highly effective method of persuasive communication that would result in helping my clients increase their profit margins. So, on to the question we are addressing.
Every physician, nurse practitioner, pharmacist and insurance company is familiar with this oft heard question, “Why do drug companies charge so much for my medications?”
Well, the answer can be either complex or simple. This blog tries to provide a glimpse of the complex answer but the simple answer to the question may be, “Because they can.”
Simple answers always sound good but they are seldom accurate so let’s begin by taking a good look at the problem.
Prescription drug prices are very high, higher in the United States than any other developed country in the world.
It is estimated that about 48 percent of Americans take at least one prescription drug but the high cost of drugs hits older people the hardest. It is a fact of life that as you age you need more medical attention and must take more prescribed drugs to stay healthy.
The cost of drugs for people with chronic diseases, transplant patients, and mental illnesses is in some cases prohibitive. Many patients are faced with making tough choices about how they spend their money and often the choice is between medicine and food, but rather than allude to the problem I will address it head on with examples.
Cancer is a condition into which billions of dollars has been poured. The disease offers a great example of research that sometimes results in medication and/or therapy that effectively treats and sometimes even cures the patient. But, and this is a huge but, those who need the drugs the most may also be unlikely to afford them.
Overall, cancer drug prices are skyrocketing. Of the dozen drugs approved by the Food and Drug Administration for various cancers in 2012, eleven were priced above $100,000 for a year of treatment. Writing in an op-ed in the New York Times in October 2012, three physicians at New York City’s Memorial Sloan Kettering Cancer Center noted that “the typical new cancer drug coming on the market a decade ago cost $4,500 per month (in 2012 dollars); since 2010 the median price has been around $10,000.”
$10,000 a month for one drug? That is beyond outrageous, right? Detractors would strongly suggest that the price borders on obscene. Well, if you think that is bad, chew on this one. There is now an approved prescription drug that costs $295,000 a year.
Let’s digest that piece of information for just a moment. There is now a prescription drug that costs twice as much as a college education and because it keeps you alive you might need to take it for years. There’s a lot of money to be made in treating diseases, probably a whole lot more than in curing them (that’s a topic for another day).
Some might say, “That $250,000 figure is an extreme example” and they would be correct, but extreme does not mean uncommon. According to Fox News, Gattex, which is prescribed for short bowel syndrome, is the fourth drug approved in 2012 that was priced above $200,000 per patient, per year. http://tinyurl.com/lnmr353
NPS pharmaceuticals in Bedminster, New Jersey, the company that makes Gattex says, no patient will have to pay out of pocket for the drug. Instead, it will be covered by a patchwork of insurance, coupons and charitable organizations. They say that commercial insurers will pay for part of the drug, around 70%. The remaining co-pay will be covered by NPS Pharmaceutical’s co-pay assistance plan or–in the case of Medicare patients–by rare disease organizations that get funding help from NPS Pharmaceuticals. About 15% of patients who can’t pay anything will get it for free. But the cost ultimately is paid by everyone through your insurance premiums, taxes or co-pays.
NPS would like to have you believe that a quarter of a million dollars for a pill is ok as long as you don’t get the full bill. But is it OK? Read on about how drug companies make and spend their money.
There are still millions of uninsured Americans, millions more are underinsured and millions more even with good insurance might not be able to afford the co-pay. So the question that needs an answer is, “What good is a new, effective drug if those who need it can’t afford it?”
So, back to the topic of this blog. Why do prescriptions cost so much? Let’s first examine the question from the perspective of the pharmaceutical companies. I want to be fair and honest here so I am going to provide some necessary details. Here’s what they say, “Prescription drugs cost a lot because we spend a lot to develop them.” Some examples:
· A single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion and even then there is no guarantee that the U.S. Food and Drug Administration (FDA) will approve it.”
· While the United States has only 5% of the world’s population, it accounts for 36% of worldwide research and development of pharmaceutical drugs. The industry says that in the next quarter century drug research will save almost three fourths of a trillion dollars in treatment costs for just five Illnesses (Aids, heart disease, cancer, Alzheimer’s and arthritis). As a further example the industry says that drugs developed to treat Schizophrenia which cost the patient about $4,500 a year save patients about $70,000 a year by keeping them out of the hospital.
· The drug companies also justify their high prices by explaining that only about ten percent of drugs that go through the clinical trial process get approval from the U.S. Food and Drug Administration (FDA). 0Overall, the case made by the pharmaceutical companies sounds convincing. Drug development is an expensive process and each year scores of companies spend millions to develop promising drugs that either fail to get into trials, fail the trials or complete the trials and are turned down by the FDA. Investors lose many billions of dollars each year on promising drugs that simply don’t live up to their expectations.
So, do the pharmaceutical companies make a good case for their high prices? Certainly one could say it is compelling in the manner and context in which it is presented. The icing on the drug company argument might be that because so many foreign governments place a cap on prescription prices American consumers wind up paying the freight for the rest of the world. And…while drug companies blame R&D costs for their high prices insiders also readily admit to pressure to increase profits before drug patents expire with the resultant generic drugs selling for far less with slimmer profit margins. So, in a rather large nutshell, that’s the case made by the pharmaceutical companies to explain the high price of prescription drugs.
As former journalist my genetic makeup dictates that I cannot present the pharmaceutical company argument and end the blog. Balance is what makes the teeter–totter a pleasant ride. Without it one end will hit the ground with a resounding, “thump.” Most people assume that a story is balanced when both sides are presented. But, what if there is more to the story? What if there are more than two sides? In the previous paragraphs I offered several angles for justifying high drug prices. Now, let’s try to offer some balance…a few judgments, of course, but mostly balance.
The above justification for drug prices makes sense when you don’t have a corporate balance sheet in front of you because we are being told only part of the story. What happens when we ask this question? Do research and development costs comprise the majority of corporate expenditures? If they do, then their argument may be justified but if not it is suspect.
Critics of pharmaceutical companies point out that only a small portion of the drug companies’ expenditures are used for research and development, with the majority of their money being spent on marketing and administration. A recent report indicates that pharmaceutical companies spend nineteen (19) times more on self-promotion than on basic research. http://tinyurl.com/bzrpsg6.
According to a report in BMJ, a medical journal based in London it is more profitable for drug companies to create a products that are only slightly different from drugs already on the market.
“Pharmaceutical research and development turns out mostly minor variations on existing drugs,” the authors write. “Sales from these drugs generate steady profits throughout the ups and downs of blockbusters coming off patents.”
The authors go on to say that for every dollar pharmaceutical companies spend on “basic research,” $19 goes toward promotion and marketing and the strategy seems to be working. According to the website MinnPost http://tinyurl.com/mywen48drug company revenues climbed more than $200 billion in the years between 1995 and 2010.
MinnPost says that in recent years more than one in five Americans age 50 and up had to cut down on dosages, switch to cheaper generic drugs (if they are available) or quit taking their drugs completely. Often the choice is between medication and food.
The argument that R and D costs account for the high cost of prescription drugs erodes when one considers that promotion not R&D is what they really spend their money on. But…the dam begins to spring a whole bunch of leaks with the knowledge that not all, in fact a majority of new drugs come from non-American companies.
Here’s a little more water to add to the bursting price dam. As I noted earlier, the U.S. is the only nation that does not have price controls and negotiate our drug prices, so it is true that in a sense, we are bearing the cost of the world’s R&D. But, even conceding that point American drug prices still appear to be excessive — and in fact, drug companies are increasingly pocketing their huge profits rather than reinvesting them.
In 2002, 78 new drugs were approved by the FDA. Of those, only 17 were deemed by the FDA to have new active ingredients, and only seven were found to be improvements over the older drugs. On top of that, of the seven found to be an improvement over the older drug, not one of them came from U.S. companies. Not a single drug. Now, to be fair, that is not true in every year but it is true often enough to destroy the defense of high drug prices the manufacturers continue to offer.
Back to the MinnPost story and we quote;
“For the past decade or so, we’ve been hearing repeatedly about an “innovation” crisis in pharmaceuticals. Big Pharma and its friends in government and elsewhere have claimed that research into new drugs is slowing down, primarily, they say, because of onerous regulatory demands.
“With the growing difficulty of getting drugs through the [Food and Drug Administration] labyrinth and the rising cost of drug approval, Pfizer must produce revenue for continued research — the lifeblood of pharmaceutical companies,” lamented the president of the Galen Institute, an industry-funded and free-market public policy organization, in Forbes last December. “Without this research, the pipeline would run dry, delaying or even killing new medicines for Alzheimer’s, Parkinson’s, and countless other diseases.”
But is it true? Is there really an innovation crisis? “No,” according to an analysis published on BMJ.com. The real crisis is in a system that rewards drug companies for developing new products that offer few, if any, therapeutic benefits over existing ones, argue Donald Light, a professor of social medicine and comparative health care at the University of Medicine and Dentistry of New Jersey, and Joel Lexchin, a professor of health policy and management at York University in Toro.”
Let us rely even further on the BMJ report and this startling fact. Most funds for basic research are public funds! So not only is R and D not responsible for high prices, the companies aren’t even paying for the R &D. That money comes primarily from taxpayer dollars funneled through publicly supported research institutions.
A cutback on public money for basic research, therefore, would seem to be a key threat to drug innovation. And, yes, research and development costs have risen significantly for drug companies (by an estimated $34.2 billion between 1995 and 2010), but revenues have risen faster (by $200.4 billion within that same time period).
Suddenly, that very air-tight case presented by the drug companies that justifies what some call price gouging — suddenly the case is full of holes and not a few distortions.
Here, though, is the capper and it is a big one. In the United States, the priciest medicines aren’t necessarily the ones that cost the most to develop, nor are they the ones that save the most lives. The most expensive drugs are those that have no competitors. It’s as simple as that. When there is no competition and the government refuses to intervene the pharmaceutical companies are free to molest the consumer’s bank account.
When a real blockbuster drug hits the market, there is very little to guide manufacturers and insurers as they negotiate prices. The largest constraint is public perception. Yes, public opinion still has some effect, not much but some. Insurers fear that, if they refuse to pay at least something, their sick customers will be outraged.
Manufacturers don’t want the public or lawmaking bodies to see them as price gougers (I think we are smarter than that) so negotiators eventually settle on a price between two extreme poles. This, however, is not a common problem. Few pharmaceutical companies face it. Most newly developed and introduced drugs find the market already crowded with competition and it is the competition that ultimately sets the prices.
Earlier I said there are rarely just two sides to a story and this story is no different than any other about which I’ve written. The final side is the seedy side, the illegal, greedy and immoral side, the side that should result in people going to jail. It has to do with kickbacks and while there may be very few medical and business professional people involved there are some.
This headline got a lot of attention and still is.
Pay to Prescribe? Two Dozen Doctors Named in Novartis Kickback Case
Less than three years ago, Novartis settled criminal and civil investigations into whether it had illegally promoted drugs to health care professionals for uses not approved by the Food and Drug Administration. The company was accused of providing illegal kickbacks to doctors through such mechanisms as entertainment, travel, and appointment to advisory boards or speaker programs. It paid $422.5 million to settle the case and signed a “corporate integrity agreement” to ensure that its promotional functions would comply with a federal anti-kickback statute.
Last week Preet Bharara, the United States attorney for the Southern District of New York, announced the filing of a lawsuit accusing the company of providing even more blatant kickbacks to pharmacies to generate sales of one of its better-selling drugs. The suit charged that Novartis provided illegal rebates and discounts to 20 or more influential pharmacies based on their success in persuading institutions and doctors to switch patients from other drugs to Myfortic, an immune suppressant used to prevent rejection of kidney transplants. (If prosecutors want to send an even stronger message, they should also pursue the corrupt pharmacies, which are suspected of pocketing tens or hundreds of thousands of dollars in illegal kickbacks.)
And Pharmacists are not immune from corruption either.
Efforts to reduce health care spending have given rise to questionable financial arrangements that may be jeopardizing the health of California patients.
Some health insurers are improperly incentivizing pharmacists to switch patient medications to older, cheaper, non-chemically equivalent drugs from those originally prescribed by their doctor, often without patients’ or physicians’ knowledge.
As a former businessman I do not begrudge any company a profit…even a good profit but I also expect honesty in reporting how they spend their money and in the case of health care there should be some compassion — just a smidgen of concern for the patient. Just how much compassion is there in a $10,000 per treatment cancer bill? The message is, “Either pay the price or die.”
That leaves us with the question, “What do we do about this situation? How do we make drugs affordable and accessible to patients? That doesn’t seem to be a topic that the U.S. congress is willing to deal with. In fact, many of our elected officials have great health care plans and don’t have to worry about the high prices. Then of course there are the millions of dollars the pharmaceutical industry spends on lobbying elected officials to resist consumer protection and if the lobbying doesn’t work, they’ll spend millions more on financing the campaigns of those who will, if elected, support them.
In closing let me refer to a point made earlier. Companies do respond to public opinion, more accurately phrased, they respond to outrage. The greater the outrage the greater the hazard to their existence so if you want change you must generate outrage and that outrage has to reach two key audiences 1) the congress of the United States and 2) the drug companies. Go for it!
Bob Aronson of Bob’s Newheart is a 2007 heart transplant recipient, the founder of Facebook’s nearly 3,000 member Organ Transplant Initiative and the author of most of these donation/transplantation blogs.
You may comment in the space provided or email your thoughts to me at firstname.lastname@example.org. And – please spread the word about the immediate need for more organ donors. There is nothing you can do that is of greater importance. If you convince one person to be an organ and tissue donor you may save or positively affect over 60 lives. Some of those lives may be people you know and love.
Please view our new music video “Dawn Anita The Gift of Life” on YouTube https://www.youtube.com/watch?v=eYFFJoHJwHs. This video is free to anyone who wants to use it and no permission is needed.
If you want to spread the word personally about organ donation, we have another PowerPoint slide show for your use free and without permission. Just go to http://www.organti.org and click on “Life Pass It On” on the left side of the screen and then just follow the directions. This is NOT a stand-alone show; it needs a presenter but is professionally produced and factually sound. If you decide to use the show I will send you a free copy of my e-book, “How to Get a Standing “O” that will help you with presentation skills. Just write to email@example.com and usually you will get a copy the same day.
Also…there is more information on this blog site about other donation/transplantation issues. Additionally we would love to have you join our Facebook group, Organ Transplant Initiative The more members we get the greater our clout with decision makers.
Puede comentar en el espacio proporcionado o por correo electrónico sus pensamientos a mí en firstname.lastname@example.org. Y – por favor, difundir la palabra acerca de la necesidad inmediata de más donantes de órganos. No hay nada que puedas hacer lo que es de mayor importancia. Si usted convence a una persona de ser donante de órganos y tejidos puede salvar o afectar positivamente a más de 60 vidas. Algunas de esas vidas pueden ser personas que conoces y amas.
Por favor, consulte nuestro nuevo video musical “Dawn Anita The Gift of Life” en https://www.youtube.com/watch?v=eYFFJoHJwHs YouTube. Este video es libre para cualquier persona que quiera usarlo y no se necesita permiso.
Si quieres correr la voz acerca de la donación de órganos personalmente, tenemos otra presentación de PowerPoint para su uso libre y sin permiso. Sólo tienes que ir a http://www.organti.org y haga clic en “Life Pass It On” en el lado izquierdo de la pantalla y luego sólo tienes que seguir las instrucciones. Esto no es un espectáculo independiente, sino que necesita un presentador pero es profesionalmente producida y sonido hechos. Si usted decide usar el programa le enviaré una copia gratuita de mi libro electrónico, “Cómo obtener un pie” O “que le ayudará con habilidades de presentación. Sólo tiene que escribir a email@example.com y por lo general usted recibirá una copia del mismo día.
Además … hay más información sobre este sitio de blogs sobre otros donación / trasplante temas. Además nos encantaría que te unas a nuestro grupo de Facebook, la Iniciativa de Trasplante de Órganos Cuantos más miembros que obtenemos mayor será nuestra influencia con los tomadores de decisiones.
Posted on July 29, 2013, in Health care costs and tagged balance, balance sheet, cancer. prescription prices, Fox News, Health, kickbacks, MinnPost, New York Times, profits, promotion, R &D. Bookmark the permalink. Leave a comment.